Stock bulls take a few steps back ahead of Federal Reserve Chief Jerome Powell’s testimony before Congress today, as well as several key payroll reports.

Many traders are no doubt rewarding the recent rally and booking profits but there are few signs that investors are jumping ship out of fear. It’s worth noting that yields on the 10-Treasury note fell to the lowest levels in a month yesterday. That was likely influenced by softer-than-expected results from the ISM Non-Manufacturing Index for February. Notably, the “prices paid” component pulled back substantially after an outsized surge in January, which bulls see supporting their view that “hot” data last month may have been a fluke. Powell’s testimony before the House Financial Services Committee today and the Senate Banking Committee tomorrow both begin at 9 a.m. CST.

Most expect Powell to stick to the central bank’s recent script that rates cuts are likely later this year but policy will remain data dependent. Policymakers have indicated that they anticipate three 25 basis point cuts this year but officials have avoided providing a specific timeframe.

Some Wall Street insiders think Powell could call out what some see as “over-exuberance” in some parts of the market, particularly AI-related tech stocks and bitcoin.

While the central bank is strongly inclined to avoid cutting rates too soon and risking inflation reigniting, Fed officials are also not keen on rate cuts fueling what some fear is a brewing “bubble” in stock market.

In the years following the financial crisis of 2007-08, such warnings might have given traders some pause but Wall Street in recent years has mostly brushed off Fed scoldings.

Today also brings ADP’s private payroll results for January, which most expect to show around +150,000 jobs added versus +107,000 in January. The official February Employment Situation on Friday is expected to show a gain of +190,000 jobs.

Investors today will also be digesting the Job Openings and Labor Turnover Survey for January and the preliminary read on Wholesale Inventories.

On the earnings front, today’s highlights include Abercrombie & Fitch, Campbell Soup, Foot Locker, Grubhub, and Victoria’s Secret. Bottom line, Fed Chair Powell's testimony and overall tone today and tomorrow will heavily influence the market.

 All eyes and ears on Chair Powell... if he comes across as more hawkish than the bulls have been thinking we could see some take a few steps backward. If he sounds or seems more dovish,  the bulls will be back to posting new all-time highs. .

Gas Prices Creeping Back Higher: Gas prices are up almost +25 cents from just over a month ago. Diesel prices are up about +15 cents from a month ago. Both, however, are still running a bit cheaper than they were at this time last year and significantly below the prices from 2022. Typically, gas prices will jump by about +50 cents from early-Feb to early-May (some years more some years less). This generally happens as prices start pushing higher ahead of the switch to summer blended fuel and more driving with better weather conditions. Remember, fuel retailers are required to sell summer-blend gas (which is more expensive to make) from June 1 to Sept. 15 as part of the Clean Air Act's 1990 amendments. To cut down on pollution, the EPA requires petroleum refiners to reduce the "vapor pressure" of gasoline during the summer. From what I understand, the summer blended fuel burns cleaner with lower emissions. The month of March is typically when most US refineries perform their needed maintenance and start to switch things over to summer blending. At this point, I'm glad we locked in a majority of our fuel needs back in late-Jan and early-Feb when we recommended making the move. It will be interesting to see how things play out the remainder of the year. 

Gold Pushes to Record High: The price of gold has surged to a record high, driven by growing expectations of US interest rate cuts, investors hunting for haven assets and months of prodigious buying by central banks and Chinese investors. The yellow metal struck $2,141 per troy ounce on Tuesday, beating the previous record of $2,135. Gold has been on a searing 16-month rally, surging +30% from just above $1,600 per troy ounce in late 2022, supported primarily by record buying by central bank emerging markets after the US weaponized the dollar in its sanctions against Russia. Hopes of US interest rate cuts and ‘phenomenal’ buying by Chinese investors have also helped drive the rally as of late. I also think all of the global unrest and uncertainty has helped dive safe-haven plays like gold and bitcoin to new all-time highs. I know a lot of seasoned investors and traders who believe gold still has a lot of room to work itself higher. I am extremely curious how much higher gold prices would be if bitcoin or other crypto's didn't exist. I should note bitcoin pushed to a fresh new all-time high yesterday as well hitting $69,210 (up +45% already this year). Source Financial Times

Household Debt is Up Sharply but Don’t Panic, Yet: Household debt reached $17.5 trillion in the fourth quarter of last year, according to the Federal Reserve Bank of New York. It seems that auto loans and credit card balances are the main culprits. And what’s more, the amount we are paying in interest on this debt — as a percentage of our income — has been moving up sharply. In just the final three months of last year, we added to our household debt $271 billion. That is +19% higher than the average for that time of year over the last two decades. Nearly half of credit card holders carry debt from month to month versus 39% three years ago. The average rate on that credit card debt reached +22.8% last year, a record high. On the other hand, incomes have also gone up quite a bit, meaning Americans are mostly able to carry the debt they’re taking on. And when you look at the interest we’re paying as a percentage of our incomes, things are not nearly as bad as in just before the 2008 financial crisis, the dot com bubble, or in the mid-80s. Today’s interest rates, as high as they are, aren’t that high. Source Market Place

Growing Share of US Workers Get a Pay Freeze : More than 12% of workers have not received a raise over the last 12 months, the most in more than two years, according to the Atlanta Fed’s Wage Growth Tracker, which measures the distribution of pay gains as well as the average. By one smoothed-out measure, the share of the workforce that’s experiencing a pay freeze is rising at the fastest pace since 2010. The backdrop is a slowing rate of inflation, which is easing the pressure for pay to keep up with the cost of living. At the top end of the Atlanta Fed’s distribution, more than one-quarter of workers saw their pay increase by at least 16% in the 12 months through January. Many of the outsize hikes are concentrated in high-demand professions like nursing, says Giacomo Santangelo, an economist at Monster. He sees a disparity in labor demand, which is increasingly focused on groups with specialized skills. Source Bloomberg

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 Biden Caps Credit Card Late Fees, Probes Healthcare Takeovers: The Biden administration on Tuesday said it would limit what banks can charge for late credit card payments and probe whether the private equity industry is making healthcare cost more for Americans, the latest crackdown on high consumer costs. The Justice Department and the Federal Trade Commission (FTC) "strike force" will aim at illegal corporate behavior that hikes prices on Americans through anticompetitive or fraudulent business practices, administration officials said. Separately, the FTC, the Justice Department and the Department of Health and Human Services (HHS) will investigate the "impact of corporate greed in health care" focusing on transactions involving private equity. It will probe how private equity deals "may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care, and affordable health care for patients and taxpayers." The administration will also finalize a rule that slashes credit card fees from an average of $31 down to $8, and another that gives ranchers and farmers more leverage when negotiating contracts with meat-packers, officials said.  Source Reuters

Russia’s Chinese Yuan Funding Lifeline Is Getting Too Expensive: Yuan financing is becoming costly and sparse in Russia, choking off a pathway to foreign capital for companies that are already facing much higher domestic interest rates and a wave of debt due this year. Two years after the invasion of Ukraine isolated Russia from the Western financial system, major energy and mining companies have come to rely on the yuan for most of their foreign-currency needs. But even as yields on China’s benchmark government bonds hover around a two-decade low, insufficient yuan liquidity in Russia and demand for the currency from importers are contributing to higher borrowing expenses. The funding dilemma leaves companies like Russia’s biggest miner, MMC Norilsk Nickel PJSC, choosing between expensive ruble funding or the rising cost of domestic yuan debt. The strain on Russian corporate coffers risks depriving industries of capital in a year when refinancing needs are sharply on the rise. Despite stellar profits, companies are feeling the pinch after the government imposed new export taxes to help fund the war, further undermining the benefit of a weaker ruble that helped drive record margins.  Source Bloomberg

Bayer Delays Break-Up: Bayer will hold off on plans to break apart the group for up to three years so that the new CEO can focus on problems including debt and litigation, leaving investors dubious about whether enough is being done to revive its fortunes. "Our answer is 'not now' – and this shouldn't be misunderstood as 'never'," CEO Bill Anderson said on a media call, also citing separation costs and capital gains taxes on any asset disposals as reasons for the delay. The maker of drugs and farming supplies said that for the next 24 to 36 months it would seek to strengthen the pharmaceutical development pipeline, address litigation, reduce debt, and to further pursue job cuts and speed up decision making by managers. Anderson faces a deluge of problems, most of which stem from the 2018 takeover of Monsanto for $63 billion. Source Reuters

AI Search Startup Perplexity Set to Double Valuation to $1 Billion: Perplexity, an artificial-intelligence startup aiming to challenge Google’s dominance in web search, is finalizing a new funding deal at around a $1 billion valuation, people familiar with the matter said, roughly doubling its valuation since its most recent financing a few months ago. The funding frenzy for the one-year-old startup is a remarkable example of the enthusiasm among some venture capitalists who think AI technology could challenge Google’s yearslong grip over search and breathe new life into startups after a bruising couple of years. Perplexity, co-founded by Chief Executive Aravind Srinivas, uses advanced AI models to provide direct answers to search queries, as opposed to a list of website links, something Google is also working on. Source WSJ

Bitcoin Funds Still Pulling in Cash at a Record Clip: Bitcoin exchange-traded funds have been a smash hit, helping feed into a frenzy that has sent the cryptocurrency’s price to a record high. Investors have piled into the funds at a historic clip since their Jan. 11 launch, with total assets in the 10 U.S. spot bitcoin funds on the market swelling to nearly $50 billion. BlackRock’s iShares Bitcoin Trust eclipsed $10 billion in assets Thursday, the fastest a new ETF has ever reached that milestone. Fidelity’s fund, now with more than $6 billion in assets, is already the asset manager’s third-largest ETF and has accounted for the bulk of its net ETF inflows this year. Some analysts predicted the funds’ big initial splash would be followed by a slowdown, but instead the pace of flows has accelerated in recent weeks as bitcoin prices approached record levels. Bitcoin set a new record Tuesday for the first time in more than two years, topping $69,000. It ended 2023 near $40,000 and was hovering around $23,000 a year ago. Many analysts attributed bitcoin’s advance in the second half of last year to anticipation that the ETFs would be approved. Now, they say investors’ embrace of the funds is driving more bullishness, in addition to creating new demand.  Source WSJ


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